The sales of newly built homes saw a significant decline in April, dropping by 4.7% compared to March, and falling even further by 7.7% from the previous year. This decline can be attributed to a variety of factors, with one of the main reasons being the impact of higher mortgage rates on the market.
The increase in mortgage rates has made it harder for potential buyers to afford new homes. The average rate on a 30-year fixed mortgage surged from the high 6% range at the end of March to 7.5% in April. This rapid increase in rates has cut into the affordability of homes, making it more difficult for buyers to qualify for a mortgage.
In addition to higher mortgage rates, the median price of a new home sold in April was $433,500, representing a 4% increase from the previous year. This rise in prices can be attributed to a combination of factors, including the mix of homes being sold, which tend to be on the higher end of the market.
Builders are facing challenges in lowering prices due to high costs for land, labor, and materials. While some large production builders have been able to lower mortgage rates to stimulate sales, the industry as a whole is struggling to meet demand. Despite efforts to boost sales, the pace of new home sales remains below the 5-year average.
According to a new index launched by the National Association of Home Builders and Wells Fargo, 38% of a median household income is needed to make the mortgage payment on a median-priced new single-family home. This percentage increases to 77% for low-income families, defined as those earning just 50% of the area’s median income.
The lack of housing units continues to be a primary driver of growing housing affordability challenges. With a nationwide shortage of roughly 1.5 million homes, prices for both new and existing homes continue to rise. While the number of newly built homes has increased by 12% year over year, the price premium on new homes puts them out of reach for many lower-income buyers.
The decline in sales of newly built homes in April highlights the impact of rising mortgage rates and affordability challenges in the housing market. Builders are facing difficulties in meeting demand due to high costs and a lack of available housing units. Addressing these challenges will be crucial in ensuring a more sustainable and accessible housing market for all buyers.